Teamwork Helps to Lick the Doomsayers

Teamwork helps to lick the doomsayers

Sydney Morning Herald, Page: 29
Wednesday, 22 October 2008

In tough economic times, the power of a franchise can brinci sweet success, writes Keeli Cambourne.

The global financial crisis may have many businesses rethinking their fu-ture but for franchises there is a positive side to the dire economic circumstances.

Franchise Works director Tim Dixon says the nearly full employment rate over the past few years has meant many franchisors have been unable to find suitable people to take on new businesses.

"With predictions that unemployment will rise, it means there will be more people considering their options and looking into a franchise," Dixon says.

And for those already in the industry, the franchise system offers a buffer to many of the problems that independent small business owners may face in the coming months.

"A franchise system is about providing a format for being successful.

"Those franchises with a better system are now in a better position and they can be more focused on the things that make them successful. And being part of a franchise means these small businesses have more market power as well. A sole operator doesn't have that market influence and group power of a franchise, so franchises usually do well in a tougher market.

"Market confidence is the underlying thing and smart franchisors and franchisees will be taking advantage of it in the current climate and play on their brand power." The executive director of the Franchise Council of Australia, Steve Wright, agrees franchising historically has done well in tough economic times.

"It is the stability of brands and the familiarity of them that helps franchises," Wright says.

"Franchises are well-systemised, well-run and have the power of a network with the aggregated purchasing and marketing power which makes it relatively easier for franchise businesses to tough it out.

"And that also makes them more attractive to potential new business entrants. For people who may have lost their jobs, or those who have been in long-term employment in professional or public service-type roles and may be looking for a change, the concept of being your own boss and franchising is attractive." Although people will be watching their discretional spending, Dixon says there are several sectors within the franchise industry that he believes will do better than others during the economic downturn.

"Fast food will increase in business because rather than spending money on an expensive night out, people will go for something cheaper," he says.

"Serviced offices I think will do well too, because businesses can scale up and down in size to meet their needs.

"[Richard Branson's Virgin Active] is about to enter the gym world, so I think there will be pressure in that sector to lower prices." Wright says the food industry is relatively safe from any hiccups, so long as what is being offered isn't a "niche luxury".

"People still need to eat and drink, so if you are providing good value retail food-anddrink offerings you have a good chance of weathering the storm," he says.

"But the closer you are to what people consider the luxury end of any business the more at risk you are." Geoff Jackson, the business development manager for Endota Spas, says the health and well-being business is one of the fastestgrowing in the world and may even grow in the global credit crunch.

"Even though people are cutting back on the big-dollar items, in this sort of environment they go back to the small luxuries so they can make themselves feel good," Jackson says.

Endota entered the franchising industry in 2003 and in the past two years has more than doubled its franchises. It is expected to have 40 franchises operating throughout Australia by Christmas.

"The growth [in franchisingi has been strong and it continues to be strong," Wright says.

"In fact, the growth in franchising has continued at around 7-8 per cent per year for the past five or six years.

"Although we are expecting a slight decrease in the next few months, we expect that it will only be some tapering of the growth.

"The areas that may feel the most pressure are those dealing with bulky goods; that is where the franchising systems in place will be tested." The only problem Wright and Dixon see arising from the financial crisis is a tightening of credit but both agree that if a franchise system is operating well, obtaining credit should not be as necessary as for other small business operators.

"Businesses that are dependent on a third party which may be affected by the downturn Be your own boss are the franchises that may feel a squeeze," Wright says.

Dixon says some industry sectors will be looking to accelerate in the conditions that are expected but points out their success will depend on whether they need much extra working capital. -"It is really hard to get any money anywhere, so that is one of the things that businesses who haven't geared themselves properly may find a bit of a bother if they have to go through any sort of restructure," Dixon says.

Roses bloom in an icy climate

DAVID ROSE knew very little about ice-cream five years ago, apart from it tasted good and everyone loved it.

But while holidaying with his wife, Gab, in Queensland, the former electrician visited an icecreamery that changed their lives.

~We saw the Cold Rock Ice Creamery on the Gold Coast and thought it was a great concept," Rose says.

HAnd we wondered whether it would work back home." Home for the young couple was Cronulla and, after 18 months of negotiations, the Roses opened their first Cold Rock Ice Creamery in January 2004.

~There [were] already a few Cold Rock franchises operating in NSW one in Parramatta, one in Manly and a couple on the Central Coast," Rose says.

With a vibrant economy and a hot climate, the Roses' Cronulla franchise boomed and 18 months ago the couple bought the Manly store.

Rose is confident the business will continue to flourish despite the gloomy economic forecast.

I think Cold Rock will actually be immune to the financial downturn because of its point of difference," Rose says. It is not a traditional ice-creamery and the fact that people can come in here and make any one of 3000 combinations is a good pick-me-up." The Roses are sure that no matter how tight some budgets may be, an ice-cream will never be out of reach.

They are in the process of expanding again and have recently hired new staff and managers in both stores.

"We have also been able to do it all with three kids under three, which proves that a successful business doesn't need to interfere with your family life," he says.